“Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.” - George W. Bush

Thursday, December 09, 2010

Nobody in Washington is paying any attention to the implications of what they are doing

Global bond rout deepens on US fiscal worries

Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events.

The yield on 10-year Treasuries – the benchmark price of money worldwide and the key driver of US mortgages rates – has rocketed to 3.3pc, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.

The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.

The White House deal with Congress will renew the Bush tax cuts for rich and poor alike for two years, as well as adding a further a 2pc cut in payroll taxes and an extension of unemployment aid.

David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.

"If this is all about growth, that's brilliant. But if yields are rising because people think Amirca's fiscal situation is unsustainable, then its armaggedon," he said.

"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.

The warnings were echoed by Li Daokui, a rate-setter for China's central bank. "The focus of the market is still in Europe, but we must be aware that the US fiscal situation is much worse than in Europe," he said.

The US tax deal adds $1 trillion of stimulus over two years, according to BNP Paribas. America's budget deficit will remain stuck near 10pc of GDP, not just in 2011 but also in 2012. This will push gross public debt to 110pc of GDP under the IMF definition, near the brink of a debt compound spiral. The contrast with fiscal tightening in Europe has become starkly evident.

Both Moody's and Fitch warned that the US must map out a credible strategy to control spending. "We have long-term concerns about the US rating outlook and they're not yet being addressed," said Stephen Hess, chief US analyst for Moody's.

Stephen Lewis, from Monument Securities, said the bond rout is a sign that Washington can no longer take global markets for granted. "We have reached the limits of tolerance for budget deficits. There is a feeling around the world that nobody in Washington is paying any attention to the implications of what they are doing, but there is a very real risk that this will backfire if it causes mortgage rates to keep going up," he said.

"At the same time we've seen a loss of confidence in Fed strategy. There is a feeling that the Fed doesn't care about inflation – in fact, wants more of it – and that is certainly not in the interest of bondholders," he said.

The standard rate for 30-year mortgages in US has moved up in tandem with Treasury yields. The rate has been creeping up ever since the US Federal Reserve first signalled plans for a fresh blast of quantitative easing, rising 85 basis points in three months.

The housing squeeze raises serious doubts about the Fed's plan to purchase a further $600bn in Treasuries over coming months, or QE2 as it is known. Fed chair Ben Bernanke stated on Sunday that the explicit purpose of the policy – which he calls "credit easing" – is to bring down yields.

"We're not printing money. What we're doing is lowering interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster," he said.

US data on foreign holdings of Treasuries and agency bonds are published with a delay, but monthly figures show that China sold a net $24bn in September and Russia sold $10bn. The concern is that investor flight from US debt will overpower the monthly purchases of $100bn by the Fed, making it ever harder for Washington to raise the $1.4 trillion needed next year to cover the deficit.

The rise in yields risks becoming a textbook case of a central bank losing control over long-term rates. The danger is that market fears of future bond losses – whether from inflation or higher default premiums – will neutralise the stimulus, or lead to stagflation.

Tom Porcelli, from RBC Capital Markets, said the Fed rates might be nearer 4pc by now if the Fed had not acted. However, he said there was no justification for QE2 at a time when the economy is growing at more than 2pc, and core inflation – though the lowest since the 1960s – is positive at 1pc. "Nobody believes that we're slipping into deflation anymore. That phase has passed," he said.

105 comments:

As the yield on the 10-year Treasury hits a six month high, you can almost hear all the doors slamming over in refi land. While you'd think most borrowers had already refinanced their loans to take advantage of the recent record-low interest rates, many have actually not, and their opportunity is fast falling.

Refinance applications have fallen steadily since the first week in October, as mortgage rates began to rise.

Now a $500 billion block of loans has become "clearly not refinanceable" according to Deutsche Bank.

One in five borrowers are underwater and unemployment is close to 10 percent. Rising mortgage rates, because of increased government borrowing, now another $1 trillion with the latest plan from Washington will put more under water.

In a report released today, the company says US homes are expected to lose an additional 63 percent more in value this year over 2009-to the tune of $1.7 trillion. This brings the total loss since the market peaked in June 2006 to $9 trillion. To put this in perspective, $9 trillion is:

12 times the cost of the war in Iraq

900 times the value of the most expensive home in the world

a little over 9 times the GDP of Australia.

Zillow says the bulk of this loss happened between June and December after government incentives like the homebuyer tax credits expired.

Zillow Chief Economist Dr. Stan Humphries says, “It’s a testament to the nearly irresistible force of the overall market correction that government incentives can only temporarily hold back the tide, and that the market will ultimately find its natural equilibrium of supply and demand.”

LA HABRA - Hundreds of K-8 teachers went on strike Wednesday at the La Habra City School District, following more than a year of failed contract negotiations and a forced 2-percent salary cut this year.

The teachers, wearing red T-shirts in a show of solidarity, held up signs and walked picket lines beginning at 7:30 a.m. Wednesday at each of the nine LHCSD schools in a strike action that union leaders say they never wanted, but were forced into.

---Nearly 190 substitute teachers were hired to help out during the strike, each at a cost of about $250 per day.

By contrast, the district pays teachers about $450 for a day's work, Belenardo said.

Dave Bing got elected in 2009 as permanent replacement for Kwame Kilpatrick. He's a businessman and a local sports hero. Pretty low key guy. Never hear too much from him and he didn't involved with the November election. He has some major plans for reviving Detroit. Don't know if they will work, but I wish him well.

One of his plans is to consolidate the city's neighborhoods or in effect shrink the city. It currently has a bureaucracy set up to manage a city of 1.2 million although the population is now closer to 800,000.

Dave Bing says there'll be incentives for Detroiters to move

Mayor Dave Bing said this week that he will begin using incentives next year to concentrate city residents in at least seven to nine core areas that will serve as population centers for a newly configured city.

• Getting Detroiters on board with neighborhood consolidation

• Mayor assesses Detroit's hopes, frustrationsIn an interview with the Free Press, Bing stressed that no resident would be forced to move, but that those who remain in areas outside the population centers "need to understand that they're not going to get the kind of services they require.""We're going to be encouraging them to move and put themselves in a better situation. ... They are much better off moving into a more dense area so that we can provide them with the services they need: that would be water, sewer, lighting, public safety -- all of that," Bing said. "We think that getting our city to be more dense with its population is the right route."

The 1st Annual Bosco Awards, scheduled for December 15 are being moved back one week to December 22. As part of the delay the awards ceremony (for this year only) will now be called the 1st Annual Bosco Awards and Christmas Special

The change in schedule will also result in a change in the scheduled entertainment. We had previously planned on having the Red Wings/Maple Leafs Hockey Game on two of the big screen TV's. The game will now be replaced by the continuous running for 24 hours starting at noon on the 22nd of the extended version of "The Christmas Story".

Peter "Ralphie" Billingsby will be on hand from 11:00 am to noon tipping a few and signing autographs.

This delay may also result in a couple day delay in putting out the Capricorn Horoscope, unless of course, some other trepidatious soul (not mentioning any names) feels inclined to take on the monumental task of working up the star charts.

The delay is caused by scheduling/security issues associated with our main surprise guest.

In addition, there is a matter involving Homeland Security, the ongoing War on Terror, and the Wikileaks scandal. I am unable to tell you more at this time due to ongoing national security concerns.

On another matter, the ACLU has joined Souls-R-Us in our lawsuit against former Bush Administration officials who are still trying to reclassify as “confidential” and “secret” a large series of posts here at the EB.

We have at this point obtained an injunction against the government halting their order “That all EB members must stop reading the bar’s archives.” We also concur in the ACLU’s statement branding the government’s position (that “Although the 1st Amendment grants freedom of the press it says nothing about the freedom to read”) as “ridiculous".

We feel that this strict interpretation of the Constitution, although supported by justices Scalia and Thomas, misses the original intent of the amendment.

Look at where the State has interfered the most, with Education. The inner-cities, where the children were bused or the Courts took control of the schools, from the local leaders.

In almost every case the loss of parental control over the student and their controlled environment became, the worse the end educational product has become.

The answer is more localized control, as localized as possible to the parental/custodial guardian level , where concern for the student is greatest, the better the student will perform.

Make the curriculum as open as is available. The varied educational orthodoxies will soon have their Systems on-line. Making a smorgasbord of educational options available to the students of America and the whirled!!!

"More than a billion $100 bills, representing roughly 10 per cent of the entire stock of US currency on the face of the Earth, is being stored in two highly-fortified Government warehouses after printing problems left it unusable."

“…problem with new high-tech $100 bills has caused government printers to shut down production of the new notes and to quarantine more than one billion of the bills…

“…The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet…

“…Sorting such a huge quantity of bills by hand, the officials estimate, could take between 20 and 30 years…

“…the bills are the most costly ever produced, with a per-note cost of about 12 cents – twice the cost of a conventional bill. That means the government spent about $120 million to produce bills it can’t use…

“…The government says that more than a decade of research and development went into the new security features on the redesigned $100…

"Why am I being told that I can't get a mortgage without a W2 from a wagepaying job?"

Here in Canada your income tax statement suffices. I got a mortgage without having a job. I've got my own business and the fact that I paid income tax on income gave the bank enough info. That and the companies financial statements.

In the US you guys have non-recourse mortgages so just 'cause you have cash in the bank doesn't make it collateral for the mortgage.

Even with a wage you can burn the bank (flipping or otherwise) because only the house is your collateral.

People who have a jobby job are using their home for a number of purposes. One of them is, oddly enough, for a place to live. Those people tend to plow money into maintaining the home. They will also ride out any downturns until they retire. If they're upside-down, they'll just wait. A house flipper just wants to do essentially a day trade, ride the bubble on the way up, then cash out hopefully near the top. Too many of these got a $400,000 load, saw their house decline to #275,000, then just walked. They called it "jingle mail", just send the keys to the bank and go, "See ya!"

You can easily flip house with a jobby job too. The problem is only the house is collateral for the mortgage. Maybe the banks are using an assumption that jobby jobbers are less likely to skip out...maybe they have some stats to back it up.

I presume the banks are bound by law to only accept the house as collateral?

The story I've been told, by a title insurance employee and by a bank employee, both who claimed they "knew," is that the restriction on mortgage loans is a dictate from the federal government.

The banks want to loan, but are being held from doing so.

This has been anecdotally confirmed by the lenders, mortgage brokers, I've spoken to.

I am pressed for time with other issues and have not attempted to dig into the actual facts; what levers are being used, etc.

At this point, being told "no" a number of times I've had to move on to other options...

But the situation still confuses me.

There are, of course, other mitigating factors as Ash and others have brought up. Recourse or no recourse, etc.

But what confuses me is the consistent message I get that it's a government edict; the banks would like to loan on the merits as they see them but are restrained.

I've heard it's was a part of the TARP or other, later, agreements they signed on to. I've heard it's because Fannie Mae, Freddie Mac or the USDA is not buying them...

As I said, all anecdotal. And no time for me right now to dig down...

And, as I mentioned before, one of the reasons I just accepted the situation and have moved on, is my mom's broker telling me of another client of his, a retired Microsoft millionaire, who spent 3 months trying to get a mortgage without success...

The Feds are in the process of balancing the three decades in which they required banks to lend to those with no ability whatsoever to repay, with some period of time in which borrowers must show proof of employment in order to qualify.

The other thing that bothered me were the stories told me by brokers about REO homes, that is bank owned homes, they bid on.

I wasn't much interested at the time, I was trying to get my mom's house sold in a tough market.

But now that it's sold, and against the advice of everyone here, I'm interested in re-investing the proceeds back into real estate, I'm remembering those conversations...

Apparently the REO sales, again anecdotally, I haven't pursued any, are not at all transparent.

The first story I heard was from the broker who assisted me. She mentioned that she had put in an offer at the listed price on an REO home for a client. Something like 6 weeks later they were told no. No reason given. Another 2 weeks later the property is listed for $100k less than her client's offer. As she said "Go figure."

The title lady I mentioned earlier was an officer in a respected company. 30 years in the biz. She said she heard and believed the banks in California are dealing REOs "out the back door" to favored individuals... Also with federal connivance. Muttered mention of Chinese money...

I think back to the Japanese buy up back in the 80s and chuckle a bit.

But I still wish there was some solid reporting being done on the whys and wherefores.

Son bought a REO here which had only changed hands twice, and only 1 or two additional loans, so it was pretty easy to conclude that hidden icebergs were unlikely.

Biggest loss was taken by last owners, two guys from New York who took a hit of $300 k in two years, apparently of their own money, as paperwork showed no seconds obtained when they purchased the house showing that recent "gain" in value a few years ago.

Vitter said he wants Carol Browner, Obama's chief energy and climate change adviser, and Steve Black, counselor to Interior Secretary Ken Salazar, to testify under oath before the Senate Small Business Committee on a November report by the Interior Department's inspector general.

That report concluded that the White House edited a drilling safety report in a way that made it appear that scientists and experts supported the administration's six-month ban on new deep-water drilling.

"Louisianians are distraught by your administration's disregard for scientific integrity, the health of the U.S. economy and domestic energy production," Vitter told Obama in the letter.

Of course, I read about this short of thing way back in 1984 with William Gibson's "Neuromancer" but its eerie to see science fiction become reality.

"Boy, that is one mean piece of software. Hottest thing since sliced bread. That goddam thing's invisible. I just now rented twenty seconds on that little pink box, four jumps left of the T-A ice; had a look at what we look like. We don't. We're not there."

Case searched the matrix around the Tessier-Ashpool ice until he found the pink structure, a standard commercial unit, and punched in closer to it. "Maybe it's defective."

"Maybe, but I doubt it. Our baby's military, though. And new. It just doesn't register. If it did, we'd read as some kind ofChinese sneak attack, but nobody's twigged to us at all. Maybe not even the folks in Straylight."

"Maybe." The construct approximated laughter. Case winced at the sensation. "I checked ol' Kuang Eleven out again for you, boy. It's real friendly, long as you're on the trigger end, jus' polite an' helpful as can be. Speaks good English, too. You ever hear of slow virus before?"

"No."

"I did, once. Just an idea, back then. But that's what ol' Kuang's all about. This ain't bore and inject, it's more like we interface with the ice so slow, the ice doesn't feel it. The face of the Kuang logics kinda sleazes up to the target and mutates, so it gets to be exactly like the ice fabric. Then we lock on and the main programs cut in, start talking circles 'round the logics in the ice. We go Siamese twin on 'em before they even get restless. . ."

Cut off the dependent class and they do get snippy. British students, who probably have never had a job in their lives, social parasites one and all, are angry because those who actually work will not be carrying them to the level they have become accustomed.

"The 62-year-old heir to the British throne and his 63-year-old wife, the Duchess of Cornwall, were said by palace officials to have been unharmed in the incident, which occurred when a group of about 50 protesters, some in full-face balaclavas and shouting “Tory scum,” broke through a cordon of motorcycle police while approaching London’s theater district in slow-speed traffic.

A photograph of the couple, in formal evening dress, showed them registering shock as protesters beat on the side of their aromored, chauffeur-driven Rolls-Royce with sticks and bottles, smashing a side window, denting a rear panel and splashing it with white paint. A Jaguar tailing behind and carrying a palace security detail was so battered that the police ended up using its doors as shields.

Prime Minister David Cameron called the attack on the royal couple’s car “shocking and regrettable.”

Other violence across the city center continued into the night, with demonstrators trying to smash their way into the Treasury building at the heart of the Whitehall government district with makeshift rams made from steel crowd barriers, setting small fires and clashing repeatedly with riot police and mounted units that formed cordons outside government buildings. BBC reporters at the scene donned helmets as the rioters threw shattered blocks of steel-reinforced concrete.

The whistleblowing organisation hosts its website with Swedish internet service provider PRQ - which has been defending cyberattacks in recent weeks - and the latest leaked files have been copied across the internet on hundreds of servers.

Assange has turned to Sweden because that country's laws are some of the best in the world for protecting the work of freedom of speech campaigners.

Under Swedish law, WikiLeaks cannot be prosecuted and neither can the people who pass it information.

I would appreciate it if you kept the jealousy behind the screen instead of in black and white. If you follow that one simple rule no one will feel uncomfortable and all will be well. Especially with words like that.

Magnificent Ronald and the Founding Fathers of al Qaeda

“These gentlemen are the moral equivalents of America’s founding fathers.” — Ronald Reagan while introducing the Mujahideen leaders to media on the White house lawns (1985). During Reagan’s 8 years in power, the CIA secretly sent billions of dollars of military aid to the mujahedeen in Afghanistan in a US-supported jihad against the Soviet Union. We repeated the insanity with ISIS against Syria.